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New European Tax Agreement Slammed as 'Half Measure'

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A new European Union agreement on sharing tax-related information about multinational companies doing business in the EU to put an end to tax avoidance and aggressive tax planning has been lambasted by lawmakers as not going far enough.

EU finance ministers this week agreed to make the largest corporations operating in the EU report their activities to tax administrations. It follows a serious of rulings and investigations by the European Parliament and Commission.

In January 2016, the European Commission branded the Belgian "excess profit" tax scheme illegal under EU state aid rules and ordered the country to recover the US$760 million unpaid tax from the companies concerned, most of which are major multinationals.

In October 2015, the Commission ruled that Luxembourg and the Netherlands have granted selective tax advantages to Fiat and Starbucks, respectively. The Commission also has three ongoing in-depth investigations into concerns that tax rulings may give rise to state aid issues, concerning Apple in Ireland, Amazon and McDonald's in Luxembourg.

The new rules will apply to multinational companies which operate cross-border in the EU. Once implemented, all member states will have the information they need to protect their tax bases and to effectively address companies that try to escape paying their fair share of taxes where they make their profits.

Lack of Scrutiny

However, critics say the new measures fall far short of the full country-by-country reporting obligations demanded by the European Parliament for ensuring full transparency of corporations' tax dealings. Many lawmakers want the reporting to be made public — rather than being shared covertly between EU member states' tax agencies.

Green lawmaker group tax spokesperson Molly Scott Cato said:

"Today's decision is a small step forward for strengthening oversight over corporations' tax dealings. It is a half measure however, if that. While today's agreement should allow proper scrutiny of these tax dealings by the authorities, it falls far short of the European Parliament's call for big companies to make this country-by-country information fully public. Worse, by limiting this reporting obligation to only the largest companies, less than a third of big corporations in Europe will be covered."

According to data collected by the Dutch-based Centre for Research on Multinational Corporations (SOMO, of the top 5000 listed companies in Europe, only 1044 companies will be covered by the agreement, compared to 3458 under the existing EU criteria to define a large company.

"Strengthening transparency of corporations' tax activities is crucial for tackling tax avoidance. Public country-by-country reporting obligations for all large corporations would enable proper scrutiny of their tax management schemes," Cato said.

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